Two signs are positive that the housing slump may be coming to an end. First, the National Association of Realtors says it's going to get worse, but not by much, and the Mortgage Bankers Association says mortgage applications are up for the week. When NAR says there's pent-up buyer demand, the quickly rising mortgage apps tend to support that idea. And where there's pent-up demand, the housing market can turn on a dime.
The housing market will probably hold close to present levels in the months ahead, according to the latest forecast by the National Association of Realtors.
Lawrence Yun, NAR senior economist, said he isn't looking for any notable changes in sales activity, even though the NAR predicts further decreases of one percent, or 70,000 homes.
"Existing-home sales should be relatively stable over the next few months, holding in a modest range, with some pent-up demand growing from buyers who've been on the sidelines," he said. "Mortgage disruptions will hold back sales over the short term, but long-term fundamentals are favorable. A modest upturn is projected for existing-home sales toward the end of the year, with broader improvement to include the new-home market by the middle of 2008."
It's unclear whether or not the NAR took into account some recent news by the MBA, that mortgage applications and refinancings took a sudden surge upward, based on lower interest rates. Cheaper gas might have also had an impact, but the upshot is that buyers are willing to act quickly on good news, and that supports NAR's statement that pent-up demand does indeed exist.
Existing-home sales are forecast at 6.04 million in 2007 and 6.38 million next year, below the 6.48 million recorded in 2006. New-home sales are expected to total 852,000 this year and 848,000 in 2008, down from 1.05 million in 2006. Housing starts, including multifamily units, are likely to total 1.43 million in 2007 and 1.40 million next year, again below the 1.80 million units started in 2006.
But Yun says that demand isn't going away. With a growing population, housing will still be needed.
"With the population growing, the demand for homes isn't going away -- it's just being delayed," Yun said. "More buyers, and cutbacks in new construction, will eventually draw down the inventory levels and support future price appreciation, but general gains will be modest next year. Serious buyers today have a long-term view of housing as an investment -- speculators have left the market."
Even so, existing-home prices should ease by 1.2 percent to a median of $219,300 in 2007 before rising 2.0 percent in 2007 to $223,600. The median new-home price will probably fall 2.3 percent to $240,800 in 2007, and then rise 2.3 percent next year to $246,300.
What buyers should note is that the 30-year fixed-rate mortgage is forecast by NAR to average 6.7 percent in the fourth quarter and then ease to the 6.5 percent range next year.
Mortgage interest rates are below next year's levels right now. The MBA says borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.41 percent, down 0.09 percentage point from last week. Interest rates today are below year-ago levels at 6.45 percent, and below projections for fall 2007.
But there's a catch. Can buyers close?
David Reed, author of Mortgages 101, now in its second printing, says that he's seeing lenders back away from loans they've already approved.
If you are an agent with a buyer applying for an Alt-A or subprime loan, you might want to step up the closing.
"Mortgage lenders don't have a vault full of money to make a loan," explains Reed. "They have a credit line they use to fund the mortgage but then sell that loan to replenish their funding ability. If the lender can no longer find a buyer for the loan they just closed (as in mortgage-backed securities,) they have no more money to make new loans. They then have to close their doors."
That's what's happening with many lenders, and it may continue until things "shake out," as Reed says. One in three loans is nonconforming, and that's where the credit crunches the most.
